Hospitalizing private practices

Alex Eben Meyer

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In 1960, health care costs in the United States constituted about five percent of GDP. In 2023, that figure reached nearly 18 percent. 

Previous research has shown that horizontal mergers of both hospitals and physician practices—when one hospital buys another or physician practices merge—is an important factor in fueling rising costs and job losses. A new study by a research team co-led by Yale’s Zack Cooper and Fiona Scott Morton ’89 examines vertical mergers—the purchase by hospitals of private physician practices—and shows they, too, contribute to health care price increases. 

Using a variety of data sets combined with machine learning methods, the team compared the outcomes of 276 US physician practices that had merged with a hospital or health system from 2008 to 2016 with a set of non-merged practices. They found that hospital ownership of physician practices increased 71.5 percent nationwide during that period. Put another way, the share of physicians working for hospitals between 2008 and 2016 nearly doubled and, by 2016, hospitals owned over 47 percent of physician practices. They found also that, two years after a hospital buys an ob-gyn practice, hospital prices for labor and delivery increase 3.3 percent and physician prices are up by 15.1 percent.

The study was published in the working paper series of the National Bureau of Economic Research.

The researchers note that federal and state agencies have initiated virtually no antitrust enforcement actions to date against non-horizontal mergers. Scott Morton, Yale’s Theodore Nierenberg Professor of Economics, explains that, under federal antitrust law, a merger between competitors is suspect if that merger hinders competition, potentially raising prices, lowering quality, or hindering innovation. “However,” she says, “physicians and hospitals are not head-to-head competitors.” Additionally, an acquisition valued below federal reporting thresholds does not require notifying federal authorities in advance, and 99.9 percent of these transactions fall below that threshold. 

Solutions to the negative effects of these mergers may have to come from states, notes Scott Morton, rather than the federal government. Several states have already passed their own oversight requirements for health care mergers and related transactions.